Community Associations Update - March 2013

Date: March 11, 2013

Minimizing Risk: The Importance of Conducting Anti-Harassment and Anti-Discrimination Training

By: Tiffany M. Releford & Jennifer S. Jackman

Take-away: Employers often underestimate the importance of providing training to prevent harassment and discrimination in the workplace until they find themselves defending a claim of harassment or discrimination. Conducting appropriate training, however, can mean the difference between having a defensible claim and being automatically liable for the unlawful conduct of a supervisor. While some employers may believe that training is expensive and that money for training could be best used for other things, the cost of taking preventative measures to avoid potential exposure for claims of harassment and discrimination is a pittance compared to the costs an employer faces in defending, much less losing, a claim of harassment or discrimination.

Discussion: The United States Supreme Court sent a strong message to employers in the Burlington Industries, Inc. v. Ellerth case, holding that employers are always liable for a supervisor’s harassment if it culminates in a tangible employment action (i.e. firing, demotion, reduction in salary). If there is no tangible action, an employer may be able to avoid liability or limit damages from a supervisor’s unlawful conduct if that employer had an appropriate anti-harassment policy and educated its employees on that policy.

Training on preventing discrimination and harassment and educating employees on EEO policies not only can limit liability, it is also vital to a healthy workplace environment. Good training teaches both employees and managers that they have the right to work in a workplace free of discrimination and harassment and demonstrates the employer’s adherence to laws and policies that prohibit discrimination and harassment in the workplace. Educating employees on unacceptable conduct and its consequences can improve the quality of the workplace by providing a clear expectation of the behavior an employer expects from its employees.

Further, while many associations have EEO policies, they have not properly trained their supervisors on such policies, and lack of training may result in inconsistent enforcement. Policies are only effective if they are followed. Managers and supervisors are often an employer’s first line of defense to claims of harassment or discrimination. It is imperative that supervisors and managers understand that their conduct can result in potential liability to the employer. When defending against a claim, the only thing worse than not having a policy is having a policy that was not followed. Thus, not only is it important to train employees, it is equally important to train supervisors so that they understand and adhere to the harassment policies and grievance process.

By providing EEO training, not only are employers educating employees that harassment and discrimination will not be tolerated, but supervisors and managers also learn of their obligation to be proactive and monitor workplace behavior, as well as to respond to and promptly investigate complaints of harassment or discrimination to avoid potential liability. Thus, providing training to prevent harassment and discrimination is a way to avoid or limit liability from harassment and discrimination claims.

Counseling and educating employees on discrimination and harassment in the workplace should be an annual occurrence both for the employees and supervisors, and records of attendance at such trainings should be kept in each employee file. In addition, employers should routinely inform employees of where to find informational resources on harassment and discrimination.

If you have questions regarding your EEO policies or need assistance with conducting training, please contact Jennifer Jackman or Tiffany Releford for guidance.

FHA Certification and Recertification

By: Kathleen A. Waldy, Esq.

Takeaway: FHA certification makes it easier to sell units in your condominium association. Applying for FHA certification has become more straightforward recently.

What is the FHA certification program? The Federal Housing Administration will insure certain mortgage loans on condominium units in a certified condominium association. Obtaining FHA certification, so units can be sold to FHA approved buyers, is an attractive benefit for buyers and also permits selling unit owners to market their units to a greater pool of potential buyers. The FHA program permits buyers to put down as little as 3.5% as opposed to the typical 20%. The lower down payment attracts many first-time buyers, who still must meet separate FHA approval requirements on their own.

Certifying a condominium association: No single unit can receive FHA finance or refinance unless the entire condominium association has been approved. The days of “spot approval,” where an individual unit could receive its own FHA approval, are long gone. A condominium association can receive certification issued either by an FHA staff member through the HUD review and approval process (also known as HRAP) or by an FHA-approved mortgagee through the direct endorsement lender review and approval process (also known as DELRAP). The HRAP option is by far the most common, and this is the where the condominium association, through its managing agent, board of directors, outside third party servicer, and/or attorney, prepares the certification application by answering all questions listed on HUD’s certification cover letter/document and providing all requested documentation.

Renewing your certification: FHA certification must be renewed every two years. It is important for condominium associations to monitor the expiration date since the FHA will not notify you that the certificate is about to expire. Condominium associations must recertify no earlier than six months before the expiration date and/or no later than six months after the expiration date. In the event there is a lapse, the certification process is identical to the recertification process.

What the association needs to be certified: In the fall of 2012, the Federal Housing Administration revised its condominium project approval guidelines, which modified and supplemented the previous requirements contained in Mortgagee Letter 2011-22. These revisions are contained in Mortgagee Letter 2012-18 and will be effective until August 31, 2014.

  • What has not changed: The association needs to submit:
    • Its delinquency rate
    • Its investor-to-owner ratio
    • Proof of the association’s fidelity bond coverage
    • Explanation regarding any special assessments and/or pending litigation involving the condominium association
    • Its recorded governing documents, current budget, reserve account balance, FEMA flood map, management contract, and insurance declaration page
  • New requirements:
    • Mortgagee Letter 2011-22 previously placed a cap of 25% on the total commercial space permitted to be in an FHA approved project; the 2012 Mortgagee Letter now permits FHA to consider projects with commercial space between 25% to 35%
    • In addition, mixed-use condominiums with commercial space up to 50% will also be considered, but substantial, additional documentation will be required
    • Under the 2011 Letter, no more than 15% of units could be more than 30 days past due; the 2012 Letter allows 15% of the units to be as much as 60 days past due
    • Fidelity bond coverage for the condominium association’s managing agent is now required
    • Previously, the signor of the FHA certification application had to certify that he or she “is under a continuing obligation to inform HUD of any material information compiled for the review and acceptance of the project is no longer true and correct.” The new standard is less cumbersome: the signor has to certify only that he or she has “no knowledge of circumstances or conditions that might have any adverse effect on the project (including but not limited to defects in construction; substantial operational issues; or litigation, mediation or arbitration issues).” Although the “continuing obligation” requirement has been removed from the certification, the signor is still certifying that he or she is not providing any knowingly or willfully false, fictitious or fraudulent statements. A person doing so will be fined not more than $1 million or imprisoned for not more than 30 years or both.

If members of the board and/or managing agents of a condominium association have any questions regarding FHA certification or recertification, please contact your Whiteford, Taylor & Preston community association attorney for assistance.

Foreclosures in the District of Columbia - What Can Condominium Associations Do?

By: Jane Rogers

The good news for District of Columbia residents is that the real estate market is strong, prices of condominiums, in particular, are rebounding, and the foreclosure rate is low. All these things are true, but they do not tell the real story about foreclosures and the underlying effects on community associations in the District of Columbia.

In response to the economic downturn and the plunge in the housing market, in 2010, the District of Columbia Council enacted the “Saving Homes From Foreclosure Amendment Act of 2010,” which went into effect on March 12, 2011, with further amendments effective on November 26, 2011. The new provisions establish a mortgage mediation process that lenders have to comply with in order to carry out a foreclosure sale of real property in the District of Columbia. The initial impact of the legislation was a complete moratorium on residential real estate foreclosures. The practical longer-term effect of the new legislation has been to dramatically slow the rate of mortgage foreclosures in the District of Columbia. As a result, some homeowners remain in properties years after they ceased making mortgage payments.

Some community associations, particularly those developed in the years (2005-2008) immediately before the economic downturn, have been dramatically affected by the combination of deflated values and the foreclosure slowdown. Members of their communities who are delinquent in the payment of their mortgages are also not paying their assessments to the associations. In anticipation of foreclosure, some owners have abandoned their properties, perhaps thinking this would protect them from having to pay assessments. These unfortunate associations are left with growing delinquencies and limited mechanisms by which they can effectively collect the past due assessments.

Each association is unique and has to tackle its delinquencies in a manner consistent with its circumstances. Some associations are filing lawsuits and seeking judgment for the unpaid assessments, because they are able to locate the delinquent owners who have to be served with the lawsuit papers. Other associations have no remedy except to exercise their right to foreclose on their liens for unpaid assessments.

Condominiums have the statutory authority under the D.C. Condominium Act to sell units at foreclosure to satisfy their liens for unpaid assessments. That authority has not been affected by the "Saving Homes" legislation requiring lenders to follow new mediation procedures. Homeowners’ associations may also have the contractual authority to foreclose to the extent it is set forth in their recorded declarations. The decision to foreclose on a lien for unpaid assessments must be made by the Board after careful consideration of the best legal and financial options available to the association, considering each on a case-by-case basis. Even where an association has well-defined rights, exercising them through the courts can be slow and expensive. Our attorneys can provide a detailed analysis to provide each Board with the facts on which to make an informed decision on these alternatives.

The good news is that improving property values and new mortgage assistance programs have allowed some homeowners to renegotiate the terms of their mortgages and begin repayment of their assessment delinquencies. Further good news comes from the fact that investors are eager to enter the D.C. real estate market. We will all be keeping a close watch on mortgage foreclosures over the coming months to see what new developments may be affecting our community association clients.